I get the question over and over sometimes from the same people about the same stocks. This is over and over. I can never answer an individual and give that individual advice. It’s an attorney think… you understand. I can answer the question generically.
My basic personal principle is to take a profit. I always know what I want out of a particular trade. I always know that I am more than willing to pull the trigger at 20% or better. I always know that the markets are volatile and that I better grab that 20% gain the moment it first hits. I do this time and time again.
I do this through limit orders. Many of us use them to buy. I use them to sell. If you have read my site over the years you have seen me recommend putting a sell order the moment your buy order is confirmed. While that sounds silly, it is so logical. Particularly with the small caps. The small caps are so volatile, you may see that 20% the day you get your order confirmed and then NEVER AGAIN.
I am totally serious: The moment you get a buy order confirmed, decide the percentage of profit you want, and put in a sell order. It is that simple. Yes, your broker will act rather odd as he tells you about your buy and you immediately put in a sell order.
When does this NOT work? Low volume stocks. Your sell order will put an artificial cap on the price. We are talking about stocks that trade at least on average about 50 times more dollar volume per day than the value of your holding. It does not work when your holding equals most of a day’s volume, dollar-wise.
A brief warning about the Stop Loss Order:
Let’s talk about stop loss orders. So many people are thinking about the downside so much, they actually put in a sell order to guarantee a loss. Stop loss orders are great for stocks that have little or no volatility. Small caps are not great candidates for stop loss orders.
When I say “guarantees a loss,” I mean it. Playing the small caps really takes watching your holdings like your children. Just as I watch my 20 month old and my three year old in a crowded mall, I watch my small cap stocks like a hawk. You have to pay attention if you are correctly playing small caps. This is what replaces the stop loss order. Generally when bad news crosses, you have a few hours to get out. You generally do NOT have a few days. Get news alerts on your stocks delivered to your handheld device.
Good luck in your trading. Remember the small caps – and particularly the microcaps – are a different world!